Wealth management firms may have “significant widespread failings,” the U.K.’s Financial Services Authority said in a letter to chief executive officers of companies in the industry.
The British regulator said a survey of 16 unidentified firms found that 14 were judged to pose a high or medium-high risk of detriment to their customers.
The FSA said some firms didn’t keep up to date records about their clients’ financial situation and didn’t match their portfolios to the amount of risk their clients wanted to take. The watchdog said it’s “concerned” the list of shortcomings may be “prevalent” in companies beyond the sample.
“The key focus of the review was to assess suitability of client portfolios against documented client information,” Margaret Cole, head of the FSA’s conduct business unit, said in the letter. The FSA reviewed customers’ “knowledge and experience, financial situation and investment objectives,” Cole said.
Hector Sants, the FSA’s CEO, has promised a more “intrusive” approach to supervision after the U.K.’s financial watchdog was blamed for not doing enough to prevent the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008.
“You should be aware that we consider suitability -- and the ability to demonstrate it -- a key area of risk,” Cole said in the letter. “Wealth management businesses can expect to see continuing and increasing supervisory focus on these issues in the year ahead.”
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